QUESTION 1

Discuss the objectives of public sector accounting and suggest what good
accounting should entail.
[25 marks]

QUESTION 2

Discuss the roles and powers of the Minister of Finance, the Controller and Auditor
General and of Accounting Officers in Zimbabwe.

[25 marks]
Question 3

Compare and contrast the Zero Based Budgeting with the Incremental Budgeting
System and their appropriateness in the Zimbabwe Public Sector.

[Total 25 marks]

Question 4

The government of Zimbabwe operates a number of support programmes, other

than the Consolidated Revenue Fund (CRF), which benefit certain constituencies. It
is important that accounting and financial officers of such beneficiary sectors be able
to appropriately account for such funds.

Assume that you are the Finance Director to an organisation to which the following
trust funds were created on 3rd of January 2015 with the amounts as stated below:
$
Sally Foundation Fund 6,000
Presidental Scholarship Fund 10,000
Nyaradzo Children Fund 14,000

Investments were made on these funds as follows:

- 3/6/2015 Sally Foundation Fund – 500 Cadbury shares of $1.00 each were
purchased at $5.00 each
- 7/8/2015 Presidental Scholarship Fund – 200 Lever Brothers Shares were
purchased at $3.00 each
- 11/11/2015 Nyaradzo Children Fund – 1,920 shares of Flour Mills were
purchased at $5.00 each
Other transactions during the year are as follows:
- 15/2/2015 Expenses of Sally Foundation Fund – $1,700
- 18/9/2015 Scholarship awards under Presidental Fund cost $300
- 26/12/2015 420 shares in Flour Mills were sold for $1,720.

Required:

(a) To write all the Trust Fund Accounts relating to these transactions showing
the Funds accounts and Investment accounts separately.
(b) To prepare a Consolidated Statement of financial position for the fund as at
December 31, 2015
 [Total 25 marks]

Question 5
(a) State the main purpose and significant objectives of public sector accounting.
(13 marks)
(b) Analyse the ways by which the Central Government of Zimbabwe finances her
development plans. (12)

[Total 25 marks]
Question 6

International public sector accounting standards (IPSAS) are a set of accounting

standards issued by the International Public Sector Accounting Standards Board
(IPSAB) for use by public entities around the world in the preparation of financial
statements.

Required;

Comment on the adoption of IPSAS by Zimbabwe in view of the central

government’s accounting bases/techniques.

[Total 25 marks]

Question 7

Compare and contrast accounting practices in public sector and private sector in
Zimbabwe and their impact on efficiency and effectiveness. [Total 25 marks]

Question 8

Critically analyse the financial administration and regulatory framework of local

authorities in Zimbabwe.

[Total 25 marks]

Question 9
It is generally accepted that Central and Local Governments in Zimbabwe are
excessively dependent on statutory allocations for their finances.

(a) Give reasons for this state of affairs.

(b) Suggest any measures to improve the situation.

[Total 25 marks]
Question 10

Summarise the regulatory financial frame work that the Public Finance Management
Act Chapter 22:19 impose on Public Sector Accounting in Zimbabwe.

[Total 25 marks]

Question 11

(a) Briefly discuss the budgetary control mechanisms in local authorities in

Zimbabwe. (15 marks)
(b) Outline the factors that mitigate against the budgeting system in Public Sector
(10 marks)
[Total 25 marks]

Question 12

Briefly discuss about;

(a) International public sector accounting standards (IPSAS)
(b) Budgetary accounting
(c) Commitment accounting
(d) Cash accounting
(e) Fund accounting

[Total 25 marks]
QUESTION 13

Most Central Business Districts (CBDs) in Zimbabwe are inundated with vendors
stationed at street corners, some stationed at traffic lights, on street pavements and
in parking lots at shopping centres. This has created tension between traders and
the City councils who regulate and enforce municipal by-laws.

Required;

Discuss the impact of street vending to the Zimbabwean economy

[Total 25 marks]

QUESTION 14

A Government budget shows authorised appropriations and estimated revenue.

Many however, perceive the term 'budget' as a restraining or impeding factor.
Hence, people seem to develop a negative attitude to budgeting.

When it comes to budgeting in Public Sector, The Legislature is more concerned

with shifting emphasis on issues of objectives and priorities. Ministries and Extra-
Ministerial Departments require adequate information to focus on implementation
and efficiency. The Zero-Base budgeting, because of its use of decision-package
approach, based on the identification of activities is most appropriate in meeting
these objectives.
Required

Discuss:
(a) Zero-Base budgeting stating its advantages and disadvantages in its
application in Public Sector. (15 marks)
(b) Factors which militate against the budgeting system in the Public Sector.
(10 marks)
[Total 25 marks]
QUESTION 15

Condensed Financial statements of public sector organisations should show a true and fair view
of the state of affairs of the Nation as a whole for the period under review.

Required:

(a)
From the following information which was extracted from the office of the
Accountant-General, prepare a statement of CRF for the year ended 31st December
20XX:
$,000
Bal b/f 15,000,000
Treasury Bills issued during the year 18,000,000
Treasury Bills paid 10,000,000
Transfer from Contingencies Fund 15,000,000
Transfer to Contingencies Fund 8,000,000
Revenue received for the year 180,000,000
Transfer to Development Fund 30,000,000
Expenditure for the Year 140,000,000

(10 marks)

(b)

Comment on the adoption of IPSAS by Zimbabwe (15 marks)

[Total 25 marks]

QUESTION 16

One of the functions of the Treasurer/Finance Director of a Local Authority is to make

recommendations to the council in his capacity as financial adviser.

Required:

Discuss the financial accounting techniques/bases that can be exercised by local

authorities

[Total 25 marks]
QUESTION 17

Discuss the Zimbabwean Constitution principles that guide aspects of public money
and resources in Zimbabwe under accounting officers

[Total 25 marks]

Question 18

The City Council of Matobo authorises the construction of a new city hall on 1
January 2017. This hall is expected to cost $100,000,000. Financing for the project is
to be $50,000,000 from 6½ per cent serial bond issue, $40,000,000 from a
Government Grant, and $10,000,000 from the general fund (GF).

Transactions and events during 2017 are as follows:

(i) The city transfers $10,000,000 from the GF to the City Hall Capital Project Fund (a
CPF created for the construction).
(ii) Planning and architect’s fees are paid in the amount of $4,000,000.
(iii) The contract is awarded to the lowest bidder for $95,000,000.
(iv) The bonds are sold for $50,200,000.
(v) The amount of the premium is transferred to the debt service fund.
(vi) The construction is certified to be 50 percent complete and a bill for $47,500,000
is received from the contractor.
(vii) Contracts payable, less a 10 percent retained percentage, is paid.
(viii) The books are closed and financial statements are prepared.

Required:
(i) Journal entries to record the above transactions. (10 marks)
(ii) Financial statement of the capital project fund for the year 2017. (10 marks)

(III) Discuss briefly the solutions to the financial problems that are being faced by a
majority of local authorities in Zimbabwe (5 marks)
[Total; 25 marks]

Question 19

The ministry of finance and economic development had the following ledger
balances in respect of its Youth Empowerment Loan Fund as at 31 December, 2016:
DR CR
$ $
Cash 8,400
Loan Receivable 316,000
Investments 202,000
Fund Balance 526,400
526,400 526,400

During the year to 31 December 2017, the following transactions took place:
(i) Investments costing $61,600 were sold for $63,800.
(ii) $61,400 cash was received from the repayment of loans.
(iii) $5,000 was received from the family of a youth who migrated to the US in full
payment of a loan which had earlier been written off.
(iv) $83,600 was issued out as loan during the year.
(v) A loan of $1,500 was written off as un-collectable.
(vi) A contribution of $6,000 in cash was received as gift from a former borrower.

Required:
(a) Open the ledger accounts and record the year 2017 transactions. (12 marks)
(b) Extract a trial balance and prepare the statement of affairs of the Fund as at
31/12/2017. (8 marks)
(c) Briefly discuss what Fund accounting is. (5 marks)
[Total 25 marks]

Question 20
The Government has to do with a whole Nation. It is represented by organisations
that are established to use the resources of a Nation for the purpose of raising the
standard of life and welfare of its citizens.
Required:
(a) State the purposes of accounting in the public sector (10 marks)
(b) Briefly discuss the basic features of IPSAS 1 (15 marks)
[Total 25 marks]

Question 21

“The duties and powers of the Minister of Finance and of the Minister of local
Government are complimentary”. Discuss

[Total 25 marks]

Question 22
Mashava Rural District Council has 500 houses from which it collect rent. Four
hundred of the houses are in the high density suburb from which it collects $50 per
house per month. The rent for low density housing is $80 per house per month.

On 1January 2018 the Mashava RDC Housing Account reflected;

 A cash book balance of ($2 000)

 Borrowing powers of $500 000
 Exercised borrowing powers of $300 000
 Administrative charges still not paid of $100 000
 That 50 low density houses had paid to 28 February 2018
 That 20 high density suburb houses had paid to 31 January 2018
 That 20 low density suburb houses had not paid for December 2017
 That 40 high density suburb houses had not paid for December 2017 of which
10 still owed for November 2017 rent.
 Capital outlay of $402 900
In January 2018 the following transpired;

 The housing account received transfers from Rates account of $ 250 000
 Administrative charges owing were paid off while the account was billed
current admin charges of $90 000 of which were outstanding by the end of the
month.
 All low density suburb houses paid their rent including arrears, with 3 paying
for February 2018.
 High density suburb houses paid their January 2018 rent and clearing rent
arrears except for 2 houses of which still owed to December 2017.
 Only one high density house paid one month in advance
 A loan repayment of $20 000 was paid and charged to revenue

Assume that today is 31January 2018.

Required:

Open up the relevant accounts, close the accounts as at 31 January 2018 and
extract a trial balance of the Mashava RDC Housing Account as at that date.

[Total 25 marks]

Question 23

Describe the characteristics of public sector organisations and highlight their

differences with private sector organisations.

[Total 25 marks]

Question 24

Summarise the regulatory financial frame work that the Public Finance Management
Act Chapter 22:19 impose on Public Sector Accounting in Zimbabwe.

[Total 25 marks]

Question 25
Discuss the General responsibilities and Fiduciary duties of accounting authorities of
Zimbabwe.

[Total 25 marks]
Question 26

Briefly discuss the following terms within the Zimbabwe Public Sector Accounting
perspective;

(a) Borrowing powers

(b) Virament
(c) Writing off bad debts
 (d) Appointment of auditors
(e) Rates/Estate accounts
[Total 25 marks]

QUESTION ONE Discuss the role and functions of the Treasury and its relationship with other
Government department, in planning and controlling government expenditure.

Solution The role and functions of the treasury include:

(1) Advising on the setting of objectives for economic policy.

(2) Coordinating government expenditure towards the achievement of economic policy.

(3) Ensuring the execution of Policies in the most economic fashion by Government Departments.

(4) The overall supervision of national finance.

(5) Involvement in the process of settlement of levels of national expenditure and the raising of
revenue.

(6) Controlling Government borrowing.

(7) Management of pensions

(8) Administration of contingency funds e.g. disbursements, distaden funds etc.

(9) Payments forward – chief cashier to the government debts, incomes expenditures etc. Links with
other Government Departments (1) Involvement in scrutinizing of annual estimates (2) Consultation
on possible revisions of estimates. (3) Ensuring adequate financial controls exists within departments
including adequate staffing and accounting procedures. (4) Involvement jointly in preparation of
annual budget. Further points for Discussion (1) Importance of Treasury control during periods of
economic stringency. (2) Financial specialisation and expertise needed in dealing with estimates and
financial control. (3) Criticism of Treasury - Too much Treasury Control and interference stifling
departmental initiative. - Staffing by career civil servants and injection of specialists from outside
often resented. - Too narrow a view taken by Treasury is often over-cautious.

QUESTION TWO Discuss the role of the Controller and Auditor General.

Solution The Controller and Auditor General is an officer of Parliament (not a civil servant) who has
two main functions:- (1) As controller, he acts as Paymaster, controlling receipts and payments of
public money through various accounts. (2) As External Auditor, he audits the various departmental
accounts reporting on the Appropriation Account, etc. to the parliament, which refers them to the
Public Accounts Committee. This is a Select Committee whose duty is to consider the report and
issues arising from it. From Audit point of view, his work covers the following: Financial and
Regularity Audit (a) Financial: - to ensure that accounting and financial control systems operate
correctly so that all financial transactions are both properly authorised and properly accounted for.
(b) Regularity: - to ensure that expenditure is incurred on approved matters and is legal. (c) Value for
money audit: - an examination based on economy and efficiency to curb extravagance expenditure
and maximise receipts. The Public Accounts Committee also tends to concentrate on this question.
(d) Effectiveness of audit: - An examination to assess whether programmes undertaken to meet
established policy objectives have achieved those objectives.

QUESTION THREE Explain the main functions of an annual Budget for a public sector organisation
with which you are familiar.

Solution A budget may be defined as a financial and quantitative statement prepared prior to a
definite period of time of the policy to be perused during that time for the purposes of attaining a
given objective. A statement of the organisation’s intention against which its achievement can be
measured. Main function of an annual budget of local authority: 1. To assist in fixing the general
rate, local authority is required to levy a rate sufficient to cover the needs of the year. 2. To assist
Policy making - to help members to making decisions on the provision of services. 3. To assist control
– or Income and expenditure. 4. To authorise expenditure – authority to incur the expenditure or
collect the income. 5. To provide a standard against which to judge performance.

QUESTION FOUR The independence of Internal Audit in a public sector organisation is considered to
be essential to its effectiveness. Explain what is meant by independence in this context and give
examples of circumstances which might impair independence.

Solution As the internal auditor is appointed within the organisation he cannot be completely
independent of the organisation but he must be sufficiently independent to allow him to carry out
his duties in a manner which allows his professional judgement and recommendations to be
effective and impartial. In order to operate effectively, the internal auditor should: 1) Be
independent of all staff whose operations are under review. 2) Not be involved in routine financial
systems. 3) Have direct access to all department heads, chief executive and the management board.
4) Have full rights of access to records, assets and personnel and receive such information and
explanation as are necessary for the performance of their duties. The chief internal auditor should
have the right to report under his own name on any aspect of the financial work including that of
finance department. Impairment of Independence (a) Having an interest in business which is
involved in any way with the audit. (b) Having been previously involved e.g. as accountant in the
operations; or (c) Personal relationship e.g. a spouse or other relative of persons being audited.

QUESTION FIVE Discuss the main reasons for the growth in public expenditure.

Solution 1) Increase in range and volume of state activity – inflation. 2) The effect of economic ideas
and political theories – use of public expenditure by state as a weapon of economic control. 3) The
effects of wars and social crises. 4) With the development of the state has tended to come an
increased expectation by the public of more state activities: - Roads, transport, energy, water and
sewerage services. 5) The introduction and maintenance of the Welfare State. 6) External
involvement such as membership of OAU etc. 432 7) Internal involvement in industry and commerce
including nationalisation and control of socially significant industries and commerce and support for
industries incurring heavy research and development costs, particularly new technology industries.

QUESTION SIX (a) Explain the role and objectives of internal audit in a public sector organisation. (b)
What factors influence the size and organisation of an internal audit section in a Public Sector
organisation.
Solution The role and objectives of internal audit may vary between different parts of the Public
Sector, depending on attitudes, statutory requirements, size etc. Definition of internal audit –
Statement of internal audit practice. “An independent appraisal function within an organisation for
the review of activities as a service to all levels of management. It is a control which measures,
evaluates and reports upon the effectiveness of internal controls, financial and otherwise as a
contribution to the effective use of resources within an organisation. It is the responsibility of
internal audit to review, appraise and report upon the following matters: a) The soundness,
adequacy and application of internal controls – internal controls can be said to comprise the whole
system of controls established by management in order to 1) Safeguard its assets 2) Ensure reliability
of records 3) Promote operational efficiency and 4) Monitor adherence to policies and directives. b)
The extent to which the organisation’s assets and interests are accounted for and safeguarded from
losses of all kinds from: Factors: 1) Fraud and other offences and 2) Waste, extravagance and
inefficient administration, poor value for money and other causes. In recent years, increasing
emphasis has been put on audits role in connection with avoidance of waste and obtain value for
money. 3) The suitability and reliability of financial and other management data developed within
the organisation. Detailed procedures should exist for initiating, authorising, carrying through and
recording transactions. These procedures will allow the principles of internal check and will be kept
under review by internal auditor. Factors: 1) Type of organisation 2) The size 3) The scope and
objectives of internal audit 4) Managerial attitude to internal audit 5) The adequacy of internal
control system

QUESTION SEVEN Outline the differences between the financial objectives of: 1) Public Corporation
i.e. state owned corporations, nationalised industries, and 2) Limited companies

Solution Financial objectives of commercial concerns: 433 - To maximise the value of the firms to its
owners - Determined by management team - More financial than theoretical objective -
Management is concerned with firms and share valuation as an indication of the level of reward to
shareholders group. - Management concentrate on the theoretical objectives – reporting on firm
and share valuation helps management in decision making and policy formation process. Public
Corporations Financial objectives are specified by government rather than determined by
management. Such objectives are difficult to specify in value terms as: - There is usually no
observable market value of claims on, or right to participate in the entity. - It is difficult to identify
the ownership group, whose value should be maximised. Financial objectives are usually specified in
‘non-value’ financial terms such as target, sometimes better described as financial constraints. Main
difference in objectives of Commercial/Public Corporations: 1. The freedom of the entity’s
management determine the firm objectives. 2. The nature of objectives set – value or accounting
measures. Financial management should be integrated with the firm and designed to assist in
meeting the firm’s objectives. Difference is due to considerable differences in the operation of firm. -
Technology - Type of market

QUESTION EIGHT Outline the role played in Government accounting by: (a) The Public Accounts
Committee (b) The controller and auditor general (c) The government Ministries Accounting Officers.

Solution Accounting has been described as a process whereby transactions of an operating entity are
documented, classified and recorded for the purposes of accumulating and providing financial
information essential to the conduct of designated activities. Government accounting is an essential
element of the financial management function of government. In the main government accounting is
directed towards satisfying the accountability and management requirements of officials responsible
for the conduct of government activities and operations. It is therefore concerned with the proper
recording of all receipts of government, with the maintenance of records that reflect the propriety of
transactions and give evidence of accountability for assets and other resources available for use and
with the classification of data in a way that provides useful information for control and effective and
efficient management of government programme operations. Amongst the features of government
accounting, are the specific roles played by the Public Accounts committee, the Controller and
Auditor-General and the Ministries Accounting Officers to which we turn. a) The Public Accounts
Committee - A standing committee of a few selected members of Parliament. - Charged with
reviewing financial matters of government. 434 - This is in line with the constitutional requirement
that all financial matters in government are subject to consideration, approval and review by the
legislature. - The deliberations and recommendations of the Public Accounts Committee are based
on the report on funds and accounts by the Auditor-General. - The proceedings at the meeting are
recorded verbatim, the Auditor-General’s staff and those of accounting unit responsible for the
deliberations reacting to the points raised in the report. - Matters deliberated upon include serious
ones concerning losses on a large scale, cases of thefts and Misappropriation, failure to observe
regulations and ensure propriety of expenditure, cases of waste and other administrative
inefficiencies which have led to wastage of funds and failure to obtain value for money. - These
serious matters require proper explanation on the part of the Accounting Officer and the reaction of
the Public Accounts Committee in recommending surcharge of the principle of personal
accountability of government officers handling public funds. - The Public Accounts Committee’s
recommendations are then debated in Parliament which often insists that the government takes
necessary corrective action which often is done. - The role played by the Public Accounts Committee
ensures that the government be made accountable for financial matters to the legislature. It is a
control measure ensuring that public funds are protected and used only for purposes intended by
Parliament. It curbs any tendency by public officers to be lax and wasteful in their handling and
management of public funds. It ensures that proper accounting methods and procedures and
controls are instituted to safeguard public funds. b) The Controller and Auditor General is appointed
by the President and reports to Parliament. - He functions independently of executive council. - He
controls issues of funds from exchequer that is funds voted for use by Parliament and intended for
by spending units to be withdrawn from the exchequer, must be sanctioned for by the controller
who satisfies himself that there are adequate funds and that they will be used for the purpose
intended by Parliament. - He carries out both statutory and non statutory audit. - The more serious
audit queries known reference sheets are compiled in an audit report which is presented to
Parliament for reviewing the government’s financial management. - The institution of the office of
the Controller and Auditor-General plays a very effective role in the management of public funds. -
The Controller and Auditor-General plays the role of a watchdog and the fact that he reports to
Parliament ensures that spending units are not lax in handling public funds. - His independence in
performance of his duties ensures that he is not subjected to undue influence by the executive. He
carries out his duties without fear or favour, he expresses his opinion, qualifies his report and on the
whole the powers conferred upon him by the exchequer and Audit Act, ensures the accountability of
the executive to the legislature. Without any doubt, the role of the Controller and Auditor-General is
very essential in ensuring proper financial management. - Although the role may be that of making
of the report to Parliament, his officers carry out continuous audit inspection on the records of
accounting units of the government, this minimises incidents of fraud, thefts and other
misappropriations. 435 - The recent creation of the Auditor-General for statutory boards
underscores the importance the government attaches to the auditing function, it is indispensable. c)
- The voted funds or the grants given by Parliament for use by the accounting officer should be
properly handled to ensure regularity and propriety of expenditure. - The accounting officer is
appointed by the Permanent Secretary Treasury personally and under the principle of personal
accountability. - The letter of appointment spells out his duties and functions, emphasising the fact
he is answerable to the Public Accounts Committee on serious matters raised by the controller and
Auditor-General. - His responsibilities in management of public funds, safeguarding public property
and running his accounting unit must be carried out with diligence, dedication, with due regard for
efficiency and effectiveness. - Amongst his duties are to organise his accounting unit to ensure that
functions are carried out properly, to ensure that public property are safeguarded, to ensure that
staff under him have the necessary technical skills for the proper performance of their duties, to plan
and budget for the financial requirements of his unit as directed by Treasury, to instil cost-
consciousness in the at all levels of management, to answer audit queries, to sign the appropriation
accounts and so on. The accounting officer - The salient point of the role of the Accounting Officer is
that he is personally held responsible for any undue happenings affecting public funds in his control.
For example, should he differ with the Minister, his political head, on how to spend certain funds he
has to obey the Minister’s directives but should write to Treasury, giving details of the dispute. This
will absolve him of blame should a query arise. - Public servants handling public funds should be held
wholly responsible. As head of his accounting unit, this requirement ensures that funds are not
handled with laxity, that services are provided efficiently and effectively, that evidence is produced
on how the funds were spent and last but not least, the taxpayers have got value for money with
regard to the taxes they pay.

QUESTION NINE In relation to fund accounting, explain what is meant by the following special funds
and explain fully how they are operated. a) Revolving funds b) Trust funds c) Sinking funds

One basic feature amongst others, of government accounting, is the concept of fund entities, which
has its origin in the fact that financial powers of the executive are subject to the control of the
legislature. There is for example, a constitutional requirement that government receipts from
revenue and borrowing should be accumulated into a general fund (consolidated fund) for use of the
government as a whole, and any withdrawals from fund be subjected to sanction by the legislature.
Provision has also been made for separate treatment of monies received by the government in a
trustee capacity. These are known as trust funds from which withdrawals are made in accordance
with specific statutory provisions. Funds may also be established by law from the proceeds of
earmarked taxes, with provisions for using such receipts to attain specified programme objectives –
either with or without prior grant of authority from the legislature. Additionally, in some cases a
contingency fund may be created to enable 436 advances to be made for meeting necessary and
unforeseen expenditures, subject to subsequent authorisation by the legislature. Funds are also
established by legislative action which grants authority to spend for specified purposes and
objectives. Such funds are legal entities. Like the National Social Security Fund and the National
Hospital Insurance Fund, they have their own resources which include property, receivables,
investments and other accountable assets. Any liabilities are set off against the assets to determine
the network of the fund. Such a fund therefore is an independent accounting entity. An example of a
trust fund is the Widows and Children’s Pension Fund to which all married Civil Servants must
contribute a certain amount of their monthly salaries and on retirement or leaving the service,
refunds are made. Revolving Funds are also entities set up by legislative action to provide agencies
with resources for the attainment of specified objectives. Government enterprises are usually set up
in this manner. The initial appropriation is made out of the consolidated fund. The receipts
generated in such funds are automatically used by the agency in accordance with the law that set up
the fund. Annual legislative appropriations are not therefore required for the operation of such
funds. However, the original financing required to the financing of a programme increase or an
incurred deficit would be appropriated out of the central funds of the government. Similarly, any
surplus that may result from the operations carried out under such authority should be deposited in
the central fund as receipts of the government. Sinking Funds are also entities set up by legislative
action with the purpose of eventual liquidation or extinction of public debt. This requires annual
appropriations into the fund thus building up the fund as maturation of the debt approaches, until
the principal sum is repaid. There is necessity of investing the appropriations on a special account as
the Sinking Fund is built up. Debt requiring such fund is known as Funded Debt. There is less use of
these Funds these days as they entail tying down funds which would have been used elsewhere.

QUESTION TEN One of the principle differences between non-profit and commercial organisations is
that they have different reasons for their existence. Consequently, non-profit making organisations
follow some accounting principles which differ from accounting principles followed by commercial
organisations. You are asked to state which are the principles followed by non-profit making
organisations and why you think they are more appropriate than corresponding principles applicable
to commercial organisations.

Solution Types of non-profit making organisations are the Central Government. Local Authorities,
Trade associations, welfare clubs, religious organisations, and so on, whose motive of existence is
not profit but to advance the welfare of the members or some other. Take the example of the
government accounting system (which includes Local Government accounting). The accounts are
maintained on a receipts and payments basis. Actual receipts of revenues and actual expenditures
incurred are the basis of the financial statements. These statements are produces by each
accounting unit, not by the government as a whole. Each unit is charged with the task of providing a
service, a function during a financial year, of a current or development nature. Since authority to
raise revenue and spend public funds is vested in the legislature, the accounting unit merely has to
satisfy accountability requirements while assuming that services were actually rendered. Any
shortfalls in revenue collections or amounts owed to or by the accounting unit are not debtors or
creditors per se but are a mere reflection on the performance of the unit. Its financial position at the
end of the year is known as a statement of assets and liabilities vis a vis other units or balances held
on hand (its assets) and any unused funds (its liabilities). Revenues to be collected by way of taxes,
fees and charges, rates borrowing etc. are estimated for, and also how those revenues will be
expended are also estimated for. It would be difficult to single out individual taxpayers as debtors or
some unpaid bill at the end of the year as a creditor, since the functions of the state do not stop, but
are continuous. The reason for having a financial year is to emphasize the constitutional requirement
that Parliament is supreme in finance matters and the government must receive annual authority
(by way of the Appropriation Act) to raise and expend public funds). In this case, it would appear
that the receipts and payments basis of accounting is appropriate. 437 The other non-profit
accounting system is the income and expenditure system of accounting. Welfare clubs, Members
clubs and religious organisations and trade associations rely mainly on member’s contributions and
necessarily some members will default payment of their dues or the members may sometimes pay
in advance. This is a clear case of creditors and debtors or accruals. A surplus or deficit may be
reflect and a balance sheet drawn. This income and expenditure accounting system would appear to
be appropriate for such organisations in view of the fact that their area and scope of activities is
limited, its assets are identifiable, and liabilities can be ascertained. Although we have outlined the
differences in approach between accounting in commercial and non commercial organisations, the
dividing line is not straight and clear. It should be remembered that public sector accounting
includes government commercial enterprises with a profit motive. More over, accounting by non-
profit organisations is increasingly adopting practices similar to those employed in private industry.
Such an operation involves setting up a “business type” financial system in which the relationship of
receipts and expenditures and the financial results obtained continuously are highlighted for the
attention of agency management and legislative review.

QUESTION ELEVEN (a) “Without the profit motive there is an inevitable lack of budget motive”. Do
you agree? (b) Explain the administrative and accounting controls used to achieve the budgeted
level of expenditure by the Government Ministries.

Solution (a) Planning and control are two important management functions and accounting in the
present day conceptions lays emphasis on these two functions. In this sense, accounting is described
as management accounting, which is any form of accounting which enables a business to be
conducted more efficiently. This emphasis on accounting for efficiency, is in every area where
accounting must be used, whether in an organisation with the profit motive or in non-profit motive
organisations like the government. Budgetary control refers to the use of budgets to control the
activities of an organisation. Take the case of the government, the idea of budgetary control is in fact
extensively used. Finance being such a scarce resource, no government can afford not to budget.
Basically, the annual budget consists estimates of revenue and expenditure and each accounting unit
or cost centre has to show its operational costs being limits beyond which no expenditure should be
incurred without Treasury or Parliamentary approval. The government budget as whole should not
be exceeded without parliamentary approval. All the estimates are broken up into minor budgets for
ministries and/or departments. Vote control is in essence budgetary control and this is carried on
without profit motive. Therefore, we can emphasize that the profit motive is not necessary for the
use of budgetary control. (b) Budgeted levels of expenditure normally represent ceilings over and
above which spending units of government must not go, without approval either by Parliament or
Treasury. It is both legally and administratively binding for the government to present expenditure
estimates to Parliament. The expenditure estimates are both of recurrent and development nature
and pertain to one financial year. Sitting as a committee of supply, parliament approves the
estimates by way of the appropriation bill which is signed by the President to become an act.

QUESTION TWELVE (a) Compare and contrast the role of an accountant in a governmental
accounting with that of an accountant in commercial accounting. (b) Explain and illustrate the
distinction extraordinary items and exceptional items.

Solution In order to clearly understand the role an accountant plays in both government and
commercial accounting, we need to make a brief comparison and contrast between the two
accounting systems. Unlike private businesses, government activities are not governed by the profit
motive. Private firms essentially are concerned with profits made, for such purposes as return on
investment and expansion in a selected field of activity. In contrast, functions are undertaken by
government in multiple fields of activity, for a variety of broader purposes such as service to the
public, maintaining the financial stability of the nation, promoting trade and commerce, stimulating
private action of national importance and accelerating the development of the economy and social
welfare. Government activities encounter many kinds of problems that are of greater complexity.
Costs of performance are of significant interest to management, but they are of importance
primarily as a measure of operational efficiency and the degree to which planned programme results
are achieved with funds made available. The above description highlights the environment in which
an accountant works, both in private commercial sector and government. In all government
activities, accounting has to place emphasis on three aspects: a) Control of the acts of public bodies
and officers in their raising and expending of public funds. b) Provide information that will assist in
the economic planning of government functions and activities. c) Provide information to parliament
and the public relating to the activities of government operations in whatever form. The last aspect
is in fact a statutory requirement that the accounting officers should produce financial statements in
the form of revenue accounts, fund accounts, appropriation accounts in order to satisfy the
accountability requirements. However, it has been argued that the role of the accountant in the
government accounting system has been more or less that of a bookkeeper, having no central role of
management decision-making. That view is slowly changing. The accountant is, owing to more
sophisticate nature of his work, now more appreciated, considered as an expert, one of the
management team. He is required to provide information that will assist in the economic planning of
government functions and activities. The role of the accountant in the commercial sector is of no less
importance. Apart from the purpose for which financial statements are usually required, for
example, under the Companies Act, or some other legislations, for assessments of taxation on profits
or to support loans from banks or similar financial institutions, accounting in the present day
conception lays particular emphasis on its use of two of the important management functions of
planning and control. In this sense it is described as “Management Accounting” which may be very
briefly referred to as any form of accounting which enables a business to be conducted more
efficiently. These two management functions of planning and control are used in both government
and commercial sector accounting. Accounting therefore serves the same purpose for all
undertakings, both private and public. The accountant in all cases has to classify, record, summarise
the many transactions and events usually in terms of money or money’s worth. The most important
difference in the role of the accountant in government and commercial accounting is that profit is
not the end product in government. But they use the same techniques and overall achievements of
efficiency and effectiveness.